150488834 special commercial law letter of credit case digests

8/12/2019 150488834 Special Commercial Law Letter of Credit Case Digests

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2/34

SPCL - LETTER OF CREDIT- CASE DIGEST

a,0 is ,ot re2uired to i,vesti.ate ift'e co,tract u,derl!i,. credit 'asbee, fulfilled or ,ot*

DRFI is bou,d b! t'e establis'edusa.e*

II. PHILIPPINE VIRGINIA TOBACCOADMINISTRATION (PVTA) vs. DE

LOS ANGELES

FACTS:

Respo,de,t Ti(oteo Sevilla+proprietor a,d Ge,eral 3a,a.er of t'eP'ilippi,e Associated Resources %PAR&to.et'er wit' two ot'er e,tities+,a(el!+ t'e "atio,wide A.ro-I,dustrial Develop(e,t Corp* a,d t'eCo,solidated A.ro-Producers I,c* wereawarded i, a public biddi,. t'e ri.'tto i(port >ir.i,ia leaf tobacco forble,di,. purposes a,d eportatio, b!t'e( of P>TA a,d far(er?s low-.radetobacco*

Subse2ue,tl!+ t'e ot'er two e,titiesassi.,ed t'eir ri.'ts to P>TA a,drespo,de,t re(ai,ed t'e o,l! privatee,tit! accorded t'e privile.e*

I, t'eir co,tract respo,de,t Sevillapurc'ased fro( petitio,er a,d actuall!eported 8+;


3/34

SPCL - LETTER OF CREDIT- CASE DIGESTCusto"s of the i"ported Vir$iniablendin$ tobacco.

4'ile respo,de,t was tr!i,. to,e.otiate t'e reductio, of t'eprocure(e,t cost w'ic' atte(pt wasde,ied+ petitio,er prepared two draftsto be draw, a.ai,st said letter ofcredit for a(ou,ts w'ic' 'ave alread!beco(e due a,d de(a,dable*Respo,de,t t'e, filed a co(plai,t forda(a.es wit' preli(i,ar! i,7u,ctio,a.ai,st t'e petitio,er i, t'e a(ou,t ofP+


4/34

SPCL - LETTER OF CREDIT- CASE DIGESTirreparable+ ,or do t'e! ,ecessitatet'e issua,ce of t'e Order of "ove(ber:+ ;B@*

Co,versel!+ t'ere is trut' i,petitio,er?s clai( t'at it will suffer.reater da(a.e t'a, t'at suffered b!

respo,de,t Sevilla if t'e Order of"ove(ber :+ ;B@ is ,ot a,,ulled*Petitio,er?s stoc0 if ,ot (ade availableto ot'er parties will re2uire ware'ousestora.e a,d servici,. fees i, t'ea(ou,t of P=+@


5/34


SPS* 3E"DOKA failed to pa! t'eir firsta(orti9atio, so PJILA3LIFE draw, o,t'e SLOC fro( IAA*

Later+ upo, a,ot'er default i,a(orti9atio, pa!(e,t+ PJILA3LIFEde(a,ded t'e e,tire a(ou,t of SLOCfro( IAA*

IAA refused to pa! u,der t'e SLOCSo, t'e .rou,d t'at SPS* 3E"DOKA1spartial pa!(e,ts e,titled t'e( torefu,d w'ic' 'as t'e effect ofreduci,. t'eir liabilit! as a .uara,tor*

O, t'e ot'er 'a,d+ PJILA3LIFE a,dSPS* 3E"DOKA disa.ree o, t'e.rou,d t'at IAA 'as a, ori.i,al a,dpri(ar! obli.atio, u,der t'e SLOCSw'ic' ca,,ot be reduced b! t'e

pa!(e,ts (ade b! t'e SPS*

ISSUE:4O" liabilit! of Issui,. a,0 ca, bereduced b! partial pa!(e,ts re,dered b! t'eapplica,t to t'e be,eficiar! as a .uara,tor*

HELD:

SC ruled i, t'e ,e.ative*

I, co,strui,. t'e ter(s of a Letter ofCredit+ as i, ot'er co,tracts+ it is t'ei,te,tio, of t'e parties t'at (ust.over,*

Letters of credit a,d co,tracts for t'eissua,ce of suc' letters are sub7ect tot'e sa(e rules of co,structio, as areordi,ar! co((ercial co,tracts* T'e!are to receive a reaso,able a,d ,ot atec',ical co,structio, a,d alt'ou.'usa.e a,d custo( ca,,ot co,trolepress ter(s i, letters of credit+ t'e!are to be co,strued wit' refere,ce toall t'e surrou,di,. facts a,dcircu(sta,ces+ to t'e particular a,dofte, var!i,. ter(s i, w'ic' t'e! (a!be epressed+ t'e circu(sta,ces a,di,te,tio, of t'e parties to t'e(+ a,dt'e usa.es of t'e particular trade ofbusi,ess co,te(plated*

$,e2uivocall!+ t'e sub7ect sta,db!Letters of Credit secure t'e pa!(e,tof a,! obli.atio, of t'e 3e,do9as to

P'ila( Life i,cludi,. all i,terests+surc'ar.es a,d epe,ses t'ereo, but,ot to eceed P


6/34

SPCL - LETTER OF CREDIT- CASE DIGESTfou,d b! t'e Appellate Court to 'avebee, paid b! IAA to P'ila( Life&*

IV. FEATI BANK & TRUST CO. vs.CA

FACTS:

CJRISTIA"SE" issued a purc'aseorder to bu! certai, t!pe of lo.sfro( >ILLAL$K for t'e price of 8@dollars per cubic (eter FO*

CJRISTIA"SE" sold t'e lo.s toJA"3I TRADE OF CALIFOR"IA%JA"3I&

JA"3I i,structed t'e SEC$RIT#PACIFIC A" OF CALIFOR"IA%SPC& to issue irrevocable L/C i,favor of >ILLAL$K*

SPC t'e, (ailed t'e irrevocableL/C to its correspo,de,t ba,0 FEATIA" i,structi,. t'e sa(e toforward t'e e,closed letter tobe,eficiar! >ILLAL$K*

$,der t'e L/C a.ree(e,t+ t'e draftis to be draw, to SPC a,d t'at its'all be acco(pa,ied b! certai,docu(e,ts*

O,e of t'e docu(e,ts re2uired ist'e certificatio, b! CJRISTIA"SE"%direct bu!er& t'at t'e .oods werei, .ood order co,ditio,*

ut upo, loadi,. of t'e lo.s a,d its

i,spectio,+ CJRISTIA"SE" refusedto issue t'e sa(e*

"evert'eless+ t'e lo.s weres'ipped a,d received b! JA"3I asits co,si.,ee*

4it' abse,ce of t'e certificatio,+FEATI A" refused to adva,ce t'epa!(e,t o, t'e L/C u,til t'e creditlapsed*

>ILLAL$K t'e, filed a, actio, for(a,da(us a.ai,st CJRISTIA"SE"a,d FEATI A"*

ut si,ce CJRISTIA"SE" left t'eP'ilippi,es+ i, a, a(e,dedco(plai,t+ FEATI was alle.ed to besolidaril! liable wit'CJIRSTIA"SE"*

ISSUE:4O" FEATI A" s'ould be 'eldsolidaril! liable wit' CJIRSTIA"SE" forlatter1s ,o,-co(plia,ce wit' t'e re2uireddocu(e,ts u,der t'e L/C

HELD:

"O* It is a settled rule i, co((ercialtra,sactio,s i,volvi,. letters of creditt'at t'e docu(e,ts te,dered (ust

strictl! co,for( to t'e ter(s of t'eletter of credit*

T'e te,der of docu(e,ts b! t'ebe,eficiar! %seller& (ust i,clude alldocu(e,ts re2uired b! t'e letter*

A correspo,de,t ba,0 w'ic' departsfro( w'at 'as bee, stipulated u,dert'e letter of credit+ as w'e, it accepts

a fault! te,der+ acts o, its ow, ris0sa,d it (a! ,ot t'ereafter be able torecover fro( t'e bu!er or t'e issui,.ba,0+ as t'e case (a! be+ t'e (o,e!t'us paid to t'e be,eficiar! T'us t'erule of strict co(plia,ce*

I, t'e $,ited States+ co((ercialtra,sactio,s i,volvi,. letters of creditare .over,ed b! t'e rule of strictco(plia,ce* I, t'e P'ilippi,es+ t'esa(e 'olds true* T'e sa(e rule (ust

also be followed*

$,der t'e fore.oi,. provisio,s of t'e$*C*P*+ t'e ba,0 (a! o,l! ,e.otiate+accept or pa!+ if t'e docu(e,tste,dered to it are o, t'eir face i,accorda,ce wit' t'e ter(s a,dco,ditio,s of t'e docu(e,tar! credit*A,d si,ce a correspo,de,t ba,0+ li0et'e petitio,er+ pri,cipall! deals o,l!

DIA"A AIGAIL 3* DIESTRO SECTIO" :- ;STSE3ESTER A# 8


7/34

SPCL - LETTER OF CREDIT- CASE DIGESTwit' docu(e,ts+ t'e abse,ce of a,!docu(e,t re2uired i, t'edocu(e,tar! credit 7ustifies t'erefusal b! t'e correspo,de,t ba,0 to,e.otiate+ accept or pa! t'ebe,eficiar!+ as it is ,ot its obli.atio, toloo0 be!o,d t'e docu(e,ts* It (erel!'as to rel! o, t'e co(plete,ess of t'edocu(e,ts te,dered b! t'ebe,eficiar!*

Also+ I, re.ard to t'e ruli,. of t'elower court a,d affir(ed b! t'e Courtof Appeals t'at t'e petitio,er is ,ot a,otif!i,. ba,0 but a co,fir(i,. ba,0+we fi,d t'e sa(e erro,eous*

T'e trial court appears to 'aveoverloo0ed t'e fact t'at a, irrevocable

credit is ,ot s!,o,!(ous wit' aco,fir(ed credit*

A, irrevocable credit refers to t'eduratio, of t'e letter of credit* 4'at issi(pl! (ea,s is t'at t'e issui,. ba,0(a! ,ot wit'out t'e co,se,t of t'ebe,eficiar! %seller& a,d t'e applica,t%bu!er& revo0e 'is u,derta0i,. u,dert'e letter* T'e issui,. ba,0 does ,otreserve t'e ri.'t to revo0e t'e credit*O, t'e ot'er 'a,d+ a co,fir(ed letter

of credit pertai,s to t'e 0i,d ofobli.atio, assu(ed b! t'ecorrespo,de,t ba,0* I, t'is case+ t'ecorrespo,de,t ba,0 .ives a, absoluteassura,ce to t'e be,eficiar! t'at it willu,derta0e t'e issui,. ba,0?sobli.atio, as its

ow, accordi,. to t'e ter(s a,dco,ditio,s of t'e credit* %A.ba!a,i+Co((ercial Laws of t'e P'ilippi,es+

>ol* ;+ pp* ;-:& Je,ce+ t'e (ere fact t'at a letter of

credit is irrevocable does ,ot,ecessaril! i(pl! t'at t'ecorrespo,de,t ba,0 i, accepti,. t'ei,structio,s of t'e issui,. ba,0 'asalso co,fir(ed t'e letter of credit*

I, co((ercial tra,sactio,s i,volvi,.letters of credit+ t'e fu,ctio,sassu(ed b! a correspo,de,t ba,0 are

classified accordi,. to t'e obli.atio,sta0e, up b! it*

I, case of a ,otif!i,. ba,0+ t'ecorrespo,de,t ba,0 assu(es ,oliabilit! ecept to ,otif! a,d/ortra,s(it to t'e be,eficiar! t'e

eiste,ce of t'e letter of credit*

A ,e.otiati,. ba,0+ o, t'e ot'er 'a,d+is a correspo,de,t ba,0 w'ic' bu!s ordiscou,ts a draft u,der t'e letter ofcredit* Its liabilit! is depe,de,t upo,t'e sta.e of t'e ,e.otiatio,* If before,e.otiatio,+ it 'as ,o liabilit! wit'respect to t'e seller but after,e.otiatio,+ a co,tractual relatio,s'ipwill t'e, prevail betwee, t'e,e.otiati,. ba,0 a,d t'e seller*

I, t'e case of a co,fir(i,. ba,0+ t'ecorrespo,de,t ba,0 assu(es a directobli.atio, to t'e seller a,d its liabilit!is a pri(ar! o,e as if t'ecorrespo,de,t ba,0 itself 'ad issuedt'e letter of credit*

I, t'is case+ t'e letter (erel! providedt'at t'e petitio,er Nforward t'ee,closed ori.i,al credit to t'ebe,eficiar!*N It is i,dubitable t'at t'e

petitio,er is o,l! a ,otif!i,. ba,0 a,d,ot a co,fir(i,. ba,0 as ruled b! t'ecourts below*

If t'e petitio,er was a co,fir(i,.ba,0+ t'e, a cate.orical declaratio,s'ould 'ave bee, stated i, t'e letterof credit t'at t'e petitio,er is to 'o,orall drafts draw, i, co,for(it! wit' t'eletter of credit*

Si,ce t'e petitio,er was o,l! a,otif!i,. ba,0+ its respo,sibilit! wassolel! to ,otif! a,d/or tra,s(it t'edocu(e,tar! of credit to t'e privaterespo,de,t a,d its obli.atio, e,dst'ere*

T'e ,otif!i,. ba,0 (a! su..est to t'eseller its willi,.,ess to ,e.otiate+ butt'is fact alo,e does ,ot i(pl! t'at t'e



8/34

SPCL - LETTER OF CREDIT- CASE DIGEST,otif!i,. ba,0 pro(ises to accept t'edraft draw, u,der t'e docu(e,tar!credit*

A ,otif!i,. ba,0 is ,ot a priv! to t'eco,tract of sale betwee, t'e bu!era,d t'e seller+ its relatio,s'ip is o,l!

wit' t'at of t'e issui,. ba,0 a,d ,otwit' t'e be,eficiar! to w'o( 'eassu(es ,o liabilit!* It followst'erefore t'at w'e, t'e petitio,errefused to ,e.otiate wit' t'e privaterespo,de,t+ t'e latter 'as ,o cause ofactio, a.ai,st t'e petitio,er for t'ee,force(e,t of 'is ri.'ts u,der t'eletter*

T'e loa, a.ree(e,t is (orereaso,abl! classified as a, isolated

tra,sactio, i,depe,de,t of t'edocu(e,tar! credit*

4'et'er t'erefore t'e petitio,er is a,otif!i,. ba,0 or a ,e.otiati,. ba,0+ itca,,ot be 'eld liable* Abse,t a,!defi,itive proof t'at it 'as co,fir(edt'e letter of credit or 'as actuall!,e.otiated wit' t'e privaterespo,de,t+ t'e refusal b! t'epetitio,er to accept t'e te,der of t'eprivate respo,de,t is 7ustified*

I, re.ard to t'e fi,di,. t'at t'e

petitio,er beca(e a Ntrustee i,relatio, to t'e plai,tiff %privaterespo,de,t& as t'e be,eficiar! of t'eletter of credit+N t'e sa(e 'as ,o le.albasis*

A trust 'as bee, defi,ed as t'e Nri.'t+e,forceable solel! i, e2uit!+ to t'ebe,eficial e,7o!(e,t of propert! t'ele.al title to w'ic' is vested toa,ot'er*N %B C*)*S* @;8&

T'e co,cept of a trust presupposest'e eiste,ce of a specific propert!w'ic' 'as bee, co,ferred upo, t'eperso, for t'e be,efit of a,ot'er* I,order t'erefore for t'e trust t'eor! oft'e private respo,de,t to besustai,ed+ t'e petitio,er s'ould 'ave'ad i, its possessio, a su( of (o,e!as specific fu,d adva,ced to it b! t'eissui,. ba,0 a,d to be 'eld i, trust b!

it i, favor of t'e private respo,de,t*T'is does ,ot obtai, i, t'is case*

T'e (ere ope,i,. of a letter of credit+it is to be ,oted+ does ,ot i,volve aspecific appropriatio, of a su( of(o,e! i, favor of t'e be,eficiar!* It

o,l! si.,ifies t'at t'e be,eficiar! (a!be able to draw fu,ds upo, t'e letterof credit up to t'e desi.,ated a(ou,tspecified i, t'e letter* It does ,otco,ve! t'e ,otio, t'at a particularsu( of (o,e! 'as bee, specificall!reserved or 'as bee, 'eld i, trust*

4'at actuall! tra,spires i, a,irrevocable credit is t'at t'ecorrespo,de,t ba,0 does ,ot receivei, adva,ce t'e su( of (o,e! fro( t'e

bu!er or t'e issui,. ba,0* O, t'eco,trar!+ w'e, t'e correspo,de,tba,0 accepts t'e te,der a,d

pa!s t'e a(ou,t stated i, t'e letter+t'e (o,e! t'at it doles out co(es ,otfro( a,! particular fu,d t'at 'as bee,adva,ced b! t'e issui,. ba,0+ rat'erit .ets t'e (o,e! fro( its ow, fu,dsa,d t'e, later see0s rei(burse(e,t

fro( t'e issui,. ba,0*

Gra,ti,. t'at a trust 'as bee,created+ still+ t'e petitio,er (a! ,otbe co,sidered a trustee* As t'epetitio,er is o,l! a ,otif!i,. ba,0+ itsaccepta,ce of t'e i,structio,s of t'eissui,. ba,0 will ,ot create estoppelo, its part resulti,. i, t'e accepta,ceof t'e trust* Precisel!+ as a ,otif!i,.ba,0+ its o,l! obli.atio, is to ,otif! t'eprivate respo,de,t of t'e eiste,ce of

t'e letter of credit* Jow t'e, ca, suc'create estoppel w'e, t'at is its o,l!dut! u,der t'e law

4e also fi,d erro,eous t'e state(e,tof t'e Court of Appeals t'at t'epetitio,er Nacted as a .uara,tor of t'eissui,. ba,0 a,d i, effect also of t'elatter?s pri,cipal or clie,t+ i*e*+ Ja,sAel C'ristia,se,*N



9/34


It is a fu,da(e,tal rule t'at a,irrevocable credit is i,depe,de,t ,oto,l! of t'e co,tract betwee, t'ebu!er a,d t'e seller but also of t'ecredit a.ree(e,t betwee, t'e issui,.ba,0 a,d t'e bu!er* %Seei,.do( ofSwede, v* "ew #or0 Trust Co*+ B"*#*S* 8d @@B ;B=BM&* T'e relatio,s'ipbetwee, t'e bu!er %C'ristia,se,& a,dt'e issui,. ba,0 %Securit! Pacific"atio,al a,0& is e,tirel! i,depe,de,tfro( t'e letter of credit issued b! t'elatter*

T'e co,tract betwee, t'e two 'as ,obeari,. as to t'e ,o,-co(plia,ce b!t'e bu!er wit' t'e a.ree(e,tbetwee, t'e latter a,d t'e seller*

T'eir co,tract is si(ilar to t'at of a

co,tract of services %to ope, t'e letterof credit& a,d ,ot t'at of a.e,c! aswas i,ti(ated b! t'e Court of Appeals*

T'e u,7ustified refusal t'erefore b!C'ristia,se, to issue t'e certificatio,u,der t'e letter of credit s'ould ,otli0ewise be c'ar.ed to t'e issui,.ba,0*

As a (ere ,otif!i,. ba,0+ ,ot o,l!does t'e petitio,er ,ot 'ave a,!co,tractual relatio,s'ip wit' t'e

bu!er+ it 'as also ,ot'i,. to do wit't'e co,tract betwee, t'e issui,. ba,0a,d t'e bu!er re.ardi,. t'e issua,ceof t'e letter of credit*

T'e t'eor! of .uara,tee relied upo,b! t'e Court of Appeals 'as to,ecessaril! fail* T'e co,cept of.uara,tee vis%a%vist'e co,cept of a,irrevocable credit are i,co,siste,t wit'

eac' ot'er* I, t'e first place+ t'e .uara,tee t'eor!

destro!s t'e i,depe,de,ce of t'eba,0?s respo,sibilit! fro( t'e co,tractupo, w'ic' it was ope,ed* I, t'eseco,d place+ t'e ,ature of bot'co,tracts is (utuall! i, co,flict wit'eac' ot'er* I, co,tracts of .uara,tee+t'e .uara,tor?s obli.atio, is (erel!collateral a,d it arises o,l! upo, t'e

default of t'e perso, pri(aril! liable*O, t'e ot'er 'a,d+ i, a, irrevocablecredit t'e ba,0 u,derta0es a pri(ar!obli.atio,* %See"atio,al a,0 of Ea.lePass+ Te v* A(erica, "atio,al a,0 ofSa, Fra,cisco+ 88 F* @: ;B88M&

T'e relatio,s'ip betwee, t'e issui,.ba,0 a,d t'e ,otif!i,. ba,0+ o, t'eco,trar!+ is (ore si(ilar to t'at of a,a.e,c! a,d ,ot t'at of a .uara,tee* It(a! be observed t'at t'e ,otif!i,.ba,0 is (erel! to follow t'ei,structio,s of t'e issui,. ba,0 w'ic'is to ,otif! or to tra,s(it t'e letter ofcredit to t'e be,eficiar!* %Seero,(a, v* Public "atio,al a,0 of"ew #or0+ supra&* Its co((it(e,t iso,l! to ,otif! t'e be,eficiar!* It does

,ot u,derta0e a,! assura,ce t'at t'eissui,. ba,0 will perfor( w'at 'asbee, (a,dated to or epected of it*As a, a.e,t of t'e issui,. ba,0+ it 'aso,l! to follow t'e i,structio,s of t'eissui,. ba,0 a,d to it alo,e is itobli.ated a,d ,ot to bu!er wit' w'o(it 'as ,o co,tractual relatio,s'ip*

I, fact t'e ,otif!i,. ba,0+ eve, if t'eseller te,ders all t'e docu(e,tsre2uired u,der t'e letter of credit+

(a! refuse to ,e.otiate or accept t'edrafts draw, t'ereu,der a,d it will still,ot be 'eld liable for its o,l!e,.a.e(e,t is to ,otif! a,d/ortra,s(it to t'e seller t'e letter ofcredit*

Fi,all!+ eve, if we assu(e t'at t'epetitio,er is a co,fir(i,. ba,0+ t'epetitio,er ca,,ot be forced to pa! t'ea(ou,t u,der t'e letter* As we 'avepreviousl! eplai,ed+ t'ere was a

failure o, t'e part of t'e privaterespo,de,t to co(pl! wit' t'e ter(sof t'e letter of credit*

V. PRUDENTIAL BANK & TRUSTCO. V. IAC

FACTS:



10/34


P'ilippi,e Ra!o, 3ills %PR3-A&e,tered i,to a co,tract wit'"ISSJIO Co* of )apa, %S& for t'ei(portatio, of tetile (ac'i,eriesu,der a -!ear deferred pa!(e,tpla,*

PR3 applied for co((ercial letter

wit' PR$DE"TIAL A" i, favor of"ISSJIO* It was later approved*

PR$DE"TIAL A" t'rou.' itscorrespo,de,t ba,0 i, )apa,+ paid"ISSJIO+ after t'e latter draw, a,dissued drafts a.ai,st t'e letter ofcredit*

PR$DE"TIAL A" i,dorsed t'es'ippi,. docu(e,ts to PR3 upo,arrival of t'e (ac'i,eries*

To be able to ta0e t'e deliver! oft'e (ac'i,eries+ PR3 eecuted+ b!

prior arra,.e(e,t wit' t'ePR$DE"TIAL A"+ a trust receiptsi.,ed b! A,acleto R* C'i i, 'iscapacit! as preside,t of PR3*

PR3 obtai,ed t'e deliver! a,d 'adt'e (ac'i,eries i,stalled i, itsfactor! site*

ut later+ PR3 ceased itsoperatio,s a,d t'e (ac'i,erieswere sold to AIC Develop(e,tCorporatio,

P$R$DE"TIAL A" filed a, actio,

to collect t'e pri,cipal a(ou,tbecause PR31s obli.atio, u,der t'eL/C re(ai,ed u,paid*

Lower Court Ruli,. I,sofar as t'ea(ou,t i,volved i, t'e draft w'ic'was ,ot prese,ted a,d accepted b!PR3+ PR$DE"TIAL A" was ,ot

7ustified to u,ilaterall! pa! to"ISSJIO*

ISSUE:;* 4O" prese,t(e,t for accepta,ceof t'e drafts was i,dispe,sable before PR3ca, be 'eld liable t'ereo,* 8* 4'et'er P'ilippi,e Ra!o, is liableo, t'e basis of t'e trust receipt :* 4'et'er private respo,de,t C'i is

7oi,tl! a,d severall! liable wit' P'ilippi,eRa!o, for t'e obli.atio, sou.'t to bee,forced a,d if ,ot+ w'et'er 'e (a! beco,sidered a .uara,tor i, t'e lattersituatio,+ w'et'er t'e case s'ould 'avebee, dis(issed o, t'e .rou,d of lac0 of

cause of actio, as t'ere was ,o priore'austio, of P'ilippi,e Ra!o,?s properties*

HELD:

A letter of credit is defi,ed as a,e,.a.e(e,t b! a ba,0 or ot'erperso, (ade at t'e re2uest of acusto(er t'at t'e issuer will 'o,ordrafts or ot'er de(a,ds for pa!(e,tupo, co(plia,ce wit' t'e co,ditio,sspecified i, t'e credit*

T'rou.' a letter of credit+ t'e ba,0(erel! substitutes its ow, pro(ise topa! for o,e of its custo(ers w'o i,retur, pro(ises to pa! t'e ba,0 t'ea(ou,t of fu,ds (e,tio,ed i, t'e

letter of credit plus credit orco((it(e,t fees (utuall! a.reedupo,*

I, t'e i,sta,t case t'e,+ t'e draweewas ,ecessaril! t'e 'erei, petitio,er*It was to t'e latter t'at t'e drafts wereprese,ted for pa!(e,t*

I, fact+ t'ere was ,o ,eed foraccepta,ce as t'e issued drafts aresi.'t drafts* Prese,t(e,t foraccepta,ce is ,ecessar! o,l! i, t'ecases epressl! provided for i, Sectio,;=: of t'e "e.otiable I,stru(e,ts Law%"IL&* ;:T'e said sectio, reads

Sec* ;=:* &hen present"ent foracceptance "ust be "ade* QPrese,t(e,t for accepta,ce (ust be(ade

%a& 4'ere t'e bill is pa!able after

si.'t+ or i, a,! ot'er case+ w'ereprese,t(e,t for accepta,ce is,ecessar! i, order to fi t'e (aturit!of t'e i,stru(e,t or%b& 4'ere t'e bill epressl! stipulatest'at it s'all be prese,ted foraccepta,ce or%c& 4'ere t'e bill is draw, pa!ableelsew'ere t'a, at t'e reside,ce orplace of busi,ess of t'e drawee*



11/34


I, ,o ot'er case is prese,t(e,t foraccepta,ce ,ecessar! i, order tore,der a,! part! to t'e bill liable*

Obviousl! t'e,+ si$ht draftsdo ,otre2uire prese,t(e,t for accepta,ce*

Corollaril!+ t'e! are+ pursua,t to

Sectio, @ of t'e "IL+ pa!able o,de(a,d* Sectio, @ provides

Sec* @* &hen pa!able on de"and* QA, i,stru(e,t is pa!able o, de(a,dQ%a& 4'e, so it is epressed to bepa!able o, de(a,d+ or at si.'t+ or o,

prese,tatio, or%b& I, w'ic' ,o ti(e for pa!(e,t i,epressed*

4'ere a, i,stru(e,t is issued+accepted+ or i,dorsed w'e, overdue+it is+ as re.ards t'e perso, so issui,.+accepti,.+ or i,dorsi,. it+ pa!able o,de(a,d*

Para.rap' of t'e Trust Receiptw'ic' reads N3!/our liabilit! forpa!(e,t at (aturit! of a,! accepteddraft+ bill of ec'a,.e ori,debted,ess s'all ,ot beeti,.uis'ed or (odifiedN does ,ot+co,trar! to t'e 'oldi,. of t'e publicrespo,de,t+ co,te(plate prioraccepta,ce b! P'ilippi,e Ra!o,+ butb! t'e petitio,er* Accepta,ce+'owever+ was ,ot eve, ,ecessar! i,t'e first place because t'e draftsw'ic' were eve,tuall! issued weresi.'t drafts A,d eve, if t'ese were,ot si.'t drafts+ t'ereb! ,ecessitati,.accepta,ce+ it would be t'e petitio,erQ a,d ,ot P'ilippi,e Ra!o, Q w'ic''ad to accept t'e sa(e for t'e latterwas ,ot t'e drawee* Prese,t(e,t foraccepta,ce is defi,ed a, t'eproductio, of a bill of ec'a,.e to adrawee for accepta,ce*

T'e trial court a,d t'e publicrespo,de,t+ t'erefore+ erred i, ruli,.

t'at prese,t(e,t for accepta,ce wasa, i,dispe,sable re2uisite forP'ilippi,e Ra!o,?s liabilit! o, t'edrafts to attac'*

Co,trar! to bot' courts?pro,ou,ce(e,ts+ P'ilippi,e Ra!o,

i((ediatel! beca(e liable t'ereo,upo, petitio,er?s pa!(e,t t'ereof*Suc' is t'e esse,ce of t'e letter ofcredit issued b! t'e petitio,er* Adiffere,t co,clusio, would violate t'epri,ciple upo, w'ic' co((ercialletters of credit are fou,ded becausei, suc' a case+ bot' t'e be,eficiar!a,d t'e issuer+ "iss'o Co(pa,! Ltd*a,d t'e petitio,er+ respectivel!+ wouldbe placed at t'e (erc! of P'ilippi,eRa!o, eve, if t'e latter 'ad alread!

received t'e i(ported (ac'i,er! a,dt'e petitio,er 'ad full! paid for it*

T'e trial court a,d t'e publicrespo,de,t li0ewise erred i,disre.ardi,. t'e trust receipt a,d i,,ot 'oldi,. t'at P'ilippi,e Ra!o, wasliable t'ereo,*

$,der P*D* "o* ;;+ ot'erwise 0,ow,

a, t'e Trust Receipts Law+ Na,!tra,sactio, b! a,d betwee, a perso,referred to i, t'is Decree as t'ee,truster+ a,d a,ot'er perso,referred to i, t'is Decree as t'ee,trustee+ w'ereb! t'e e,truster+w'o ow,s or 'olds absolute title orsecurit! i,terests? over certai,specified .oods+ docu(e,ts ori,stru(e,ts+ releases t'e sa(e to t'epossessio, of t'e e,trustee upo, t'elatter?s eecutio, a,d deliver! to t'e

e,truster of a si.,ed docu(e,t calledt'e Ntrust receiptN w'erei, t'ee,trustee bi,ds 'i(self to 'old t'edesi.,ated .oods+ docu(e,ts ori,stru(e,ts i, trust for t'e e,trustera,d to sell or ot'erwise dispose of t'e.oods+ docu(e,ts or i,stru(e,ts wit't'e obli.atio, to tur, over to t'ee,truster t'e proceeds t'ereof to t'eete,t of t'e a(ou,t owi,. to t'e



12/34

SPCL - LETTER OF CREDIT- CASE DIGESTe,truster or as appears i, t'e trustreceipt or t'e .oods+ i,stru(e,tst'e(selves if t'e! are u,sold or ,otot'erwise disposed of+ i, accorda,cewit' t'e ter(s a,d co,ditio,sspecified i, t'e trusts receipt+ or forot'er purposes substa,tiall!e2uivale,t to a,! o,e of t'e followi,.* * *N

It is alle.ed i, t'e co(plai,t t'atprivate respo,de,ts N,ot o,l! 'avepresu(abl! put said (ac'i,er! to.ood use a,d 'ave profited b! itsoperatio, a,d/or dispositio, but ver!rece,t i,for(atio, t'at %sic& reac'edplai,tiff ba,0 t'at defe,da,ts alread!sold t'e (ac'i,er! covered b! t'etrust receipt to #upa,.co Cotto,3ills+N a,d t'at Nas trustees of t'e

propert! covered b! t'e trustreceipt+ * * * a,d t'erefore acti,. i,fiduciar! %sic& capacit!+ defe,da,ts'ave willfull! violated t'eir dut! toaccou,t for t'e w'ereabouts of t'e(ac'i,er! covered b! t'e trustreceipt or for t'e proceeds of a,!lease+ sale or ot'er dispositio, of t'esa(e t'at t'e! (a! 'ave (ade+,otwit'sta,di,. de(a,ds t'erefordefe,da,ts 'ave fraudule,tl!(isapplied or co,verted to t'eir ow,

use a,! (o,e! reali9ed fro( t'elease+ sale+ a,d ot'er dispositio, ofsaid (ac'i,er!*N 8:4'ile t'ere is ,ospecific pra!er for t'e deliver! to t'epetitio,er b! P'ilippi,e Ra!o, of t'eproceeds of t'e sale of t'e (ac'i,er!covered b! t'e trust receipt+ suc'relief is covered b! t'e .e,eral pra!erfor Nsuc'

furt'er a,d ot'er relief as (a! be 7ust

a,d e2uitable o, t'e pre(ises*N8=

A,d alt'ou.' it is true t'at t'epetitio,er co((e,ced a cri(i,alactio, for t'e violatio, of t'e TrustReceipts Law+ ,o le.al obstaclepreve,ted it fro( e,forci,. t'e civilliabilit! arisi,. out of t'e trust+ receipti, a separate civil actio,* $,derSectio, ;: of t'e Trust Receipts Law+t'e failure of a, e,trustee to tur,over t'e proceeds of t'e sale of

.oods+ docu(e,ts or i,stru(e,tscovered b! a trust receipt to t'eete,t of t'e a(ou,t owi,. to t'ee,truster or as appear i, t'e trustreceipt or to retur, said .oods+docu(e,ts or i,stru(e,ts if t'e!were ,ot sold or disposed of i,accorda,ce wit' t'e ter(s of t'e trustreceipt s'all co,stitute t'e cri(e ofestafa+ pu,is'able u,der t'eprovisio,s of Article :;+ para.rap';%b& of t'e Revised Pe,al Code* 8$,der Article :: of t'e Civil Code+ acivil actio, for da(a.es+ e,tirel!separate a,d disti,ct fro( t'ecri(i,al actio,+ (a! be brou.'t b!t'e i,7ured part! i, cases ofdefa(atio,+ fraud a,d p'!sicali,7uries* Estafa falls u,derfraud*

4e also co,clude+ for t'e reaso,'erei,after discussed+ a,d ,ot for t'atadduced b! t'e public respo,de,t+t'at private respo,de,t C'i?ssi.,ature i, t'e dorsal portio, of t'etrust receipt did ,ot bi,d 'i(solidaril! wit' P'ilippi,e Ra!o,*

Petitio,er i,sists t'at b! virtue of t'eclear wordi,. of t'e state(e,t+specificall! t'e clause N* * * we 7oi,tl!a,d severall! a.ree a,du,derta0e * * *+N a,d t'e co,cludi,.

se,te,ce o, e'austio,+ C'i?s liabilit!t'erei, is solidar!*

Our ow, readi,. of t'e 2uestio,edsolidar! .uara,t! clause !ields ,oot'er co,clusio, t'a, t'at t'eobli.atio, of C'i is o,l! t'at of a$uarantor* T'is is furt'er bolstered b!t'e last se,te,ce w'ic' spea0s ofwaiver of e'austio,+ w'ic'+,evert'eless+ is i,effective i, t'iscase because t'e space t'erei, for

t'e part! w'ose propert! (a! ,ot bee'austed was ,ot filled up* $,derArticle 8


13/34

SPCL - LETTER OF CREDIT- CASE DIGESTad(its t'at t'e 2uestio,ed provisio,is a solidar! $uarant! clause+ t'ereb!clearl! disti,.uis'i,. it fro( aco,tract of suret!* It+ 'owever+described t'e .uara,t! as solidar!betwee, t'e .uara,tors t'is would'ave bee, correct if two %8&.uara,tors 'ad si.,ed it* T'e clauseNwe 7oi,tl! a,d severall! a.ree a,du,derta0eN refers to t'e u,derta0i,.of t'e two %8& parties w'o are to si.,it or to t'e liabilit! eisti,. betwee,t'e(selves* It does ,ot refer to t'eu,derta0i,. betwee, eit'er o,e orbot' of t'e( o, t'e o,e 'a,d a,d t'epetitio,er o, t'e ot'er wit' respect tot'e liabilit! described u,der t'e trustreceipt* Elsewise stated+ t'eir liabilit!is ,ot divisible as betwee, t'e(+ i*e*+it ca, be e,forced to its full ete,ta.ai,st a,! o,e of t'e(*

A,d ,ow to t'e ot'er .rou,d reliedupo, b! t'e petitio,er as basis for t'esolidar! liabilit! of C'i+ ,a(el! t'ecri(i,al proceedi,.s a.ai,st t'elatter for t'e violatio, of P*D* "o* ;;*Petitio,er clai(s t'at because of t'esaid cri(i,al proceedi,.s+ C'i wouldbe a,swerable for t'e civil liabilit!arisi,. t'erefro( pursua,t to Sectio,

;: of P*D* "o* ;;* Public respo,de,tre7ected t'is clai( because suc' civilliabilit! presupposes prior co,victio,as ca, be .lea,ed fro( t'e p'raseNwit'out pre7udice to t'e civil liabilit!arisi,. fro( t'e cri(i,al offe,se*Not' are wro,.*

Corporatio,s+ part,ers'ips+associatio,s a,d ot'er 7uridicale,tities ca,,ot be put i, 7ail*Jowever+ it is t'ese e,tities w'ic' are(ade liable for t'e civil liabilit!

arisi,. fro( t'e cri(i,al offe,se* T'isis t'e i(port of t'e clause Nwit'outpre7udice to t'e civil liabilities arisi,.fro( t'e cri(i,al offe,se*N A,d+ as4e stated earlier+ si,ce t'at violatio,of a trust receipt co,stitutes fraudu,der Article :: of t'e Civil Code+petitio,er was acti,. well wit'i, itsri.'ts i, fili,. a, i,depe,de,t civilactio, to e,force t'e civil liabilit!

arisi,. t'erefro( a.ai,st P'ilippi,eRa!o,*

Jowever+ C'i?s liabilit! is li(ited tot'e pri,cipal obli.atio, i, t'e trustreceipt plus all t'e accessoriest'ereof i,cludi,. 7udicial costs

VI. BANK OF AMERICA V. COURTOF APPEALS

FACTS:

A, irrevocable letter of credit wasissued b! A" OF A#$DJ#A ofT'aila,d upo, applicatio, b!GE"ERAL CJE3ICALS of T'aila,d %A&i, favor of I"TER RESI" I,dustrialCorporatio, %S& for t'e purc'ase ofcertai, plastic ropes a,d a.riculturalresi,*

Irrevocable L/C was (ailed b! A"OF A#$DJ#AJ to A" OF A3ERICA*

A" OF A3ERICA ,otified I"TERRESI" of t'e L/C*

I"TER RESI" re2uested A" OFA3ERICA to co,fir( t'e L/C but t'elatter refused w'ile o,e of itse(plo!ees eplai,ed t'at t'ere is ,o,eed for t'at because t'e L/C is.e,ui,e*

A" OF A3ERICA issed ;


14/34

SPCL - LETTER OF CREDIT- CASE DIGESTISSUES:

;* 4O" A" OF A3ERICA 'aswarra,ted t'e .e,ui,e,ess a,daut'e,ticit! of t'e letter of credit a,d+corollaril!+ w'et'er it 'as acted(erel! as a, advisi,. ba,0 or as aco,fir(i,. ba,0

8* 4O" a,0 of A(erica (a! recovera.ai,st I,ter-Resi, u,der t'e drafteecuted i, its partial avail(e,t of t'eletter of credit*

HELD:

T'e first issue raised wit' t'epetitio,er+ i*e*+ t'at it 'as i, t'isi,sta,ce (erel! bee, advisi,. ba,0+ isoutri.'tl! re7ected b! I,ter-Resi, a,d

is t'us sou.'t to be discarded for'avi,. bee, raised o,l! o, appeal* 4eca,,ot a.ree* T'e crucial poi,t ofdispute i, t'is case is w'et'er u,dert'e Nletter of credit+N a,0 of A(erica'as i,curred a,! liabilit! to t'eNbe,eficiar!N

t'ereof+ a, issue t'at lar.el! isdepe,de,t o, t'e ba,0?s participatio,i, t'at tra,sactio, as a (ere advisi,.or ,otif!i,. ba,0+ it would ,ot be

liable+ but as a co,fir(i,. ba,0+ 'adt'is bee, t'e case+ it could beco,sidered as 'avi,. i,curred t'atliabilit!*

It ca,,ot seriousl! be disputed+loo0i,. at t'is case+ t'at a,0 ofA(erica 'as+ i, fact+ o,l! bee, a,advisi,.+ ,ot co,fir(i,.+ ba,0+ a,dt'is (uc' is clearl! evide,t+ a(o,.ot'er t'i,.s+ b! t'e provisio,s of t'eletter of credit itself+ t'e petitio,erba,0?s letter of advice+ its re2uest for

pa!(e,t of advisi,. fee+ a,d t'ead(issio, of I,ter-Resi, t'at it 'aspaid t'e sa(e*

T'at a,0 of A(erica 'as as0ed I,ter-Resi, to sub(it docu(e,ts re2uiredb! t'e letter of credit a,d eve,tuall!'as paid t'e proceeds t'ereof+ did ,otobviousl! (a0e it a co,fir(i,. ba,0*

T'e fact+ too+ t'at t'e draft re2uiredb! t'e letter of credit is to be draw,

u,der t'e accou,t of Ge,eralC'e(icals %bu!er& o,l! (ea,s t'esa(e 'ad to be prese,ted to a,0 ofA!ud'!a %issui,. ba,0& for pa!(e,t* It(a! be si.,ifica,t to recall t'at t'eletter of credit is a, e,.a.e(e,t oft'e issui,. ba,0+ ,ot t'e advisi,.ba,0+ to pa! t'e draft*

Article ; of t'e $*C*P* states t'atNa,0s assu(e ,o liabilit! orrespo,sibilit! for t'e co,se2ue,cesarisi,. out of t'e dela! a,d/or loss i,tra,sit of a,! (essa.es+ letters ordocu(e,ts+ or for dela!+ (utilatio, orot'er errors arisi,. i, t'e tra,s(issio,of a,! teleco((u,icatio, * * *N

As advisi,. ba,0+ a,0 of A(erica isbou,d o,l! to c'ec0 t'e Nappare,taut'e,ticit!N of t'e letter of credit+

w'ic' it did*

8B

Clarif!i,. its (ea,i,.+4ebster?s "i,t' "ew Colle.iateDictio,ar! :


15/34

SPCL - LETTER OF CREDIT- CASE DIGESTco,ti,ues to assu(e a co,ti,.e,tliabilit! t'ereo,*

T'e pa!(e,t to I,ter-Resi, 'as .ive,+as aforesaid+ a,0 of A(erica t'e ri.'tof rei(burse(e,t fro( t'e issui,.ba,0+ a,0 of A!ud'!a w'ic'+ i, tur,+would t'e, see0 i,de(,ificatio, fro(t'e bu!er %t'e Ge,eral C'e(icals of

T'aila,d&* Si,ce a,0 of A!ud'!adisow,ed t'e letter of credit+ 'owever+a,0 of A(erica (a! ,ow tur, toI,ter-Resi, for restitutio,*

T'e additio,al .rou,d raised b! t'epetitio,er+ i*e*+ t'at I,ter-Resi, se,twaste i,stead of its products+ is reall!of ,o co,se2ue,ce* I, t'e operatio, ofa letter of credit+ t'e i,volved ba,0sdeal o,l! wit' docu(e,ts a,d ,ot o,.oods described i, t'ose docu(e,ts*:=

I, fi,e+ we 'old t'at Q

First+ .ive, t'e factual fi,di,.s of t'e courtsbelow+ we co,clude t'at petitio,er a,0 ofA(erica 'as acted (erel! as a notif!in$banka,d did ,ot assu(e t'e respo,sibilit!of a confir"in$ bank a,d

Seco,d+ petitio,er ba,0+ as a ne$otiatin$bank+ is e,titled to recover o, I,ter-Resi,?s

partial avail(e,t as be,eficiar! of t'e letterof credit w'ic' 'as bee, disow,ed b! t'ealle.ed issuer ba,0*

VII. RODZSEN SUPPLY V. FAR EASTBANK & TRUST CO.

FACTS:

RODKSE" applied for do(estic L/Cfro( FAR EAST A" i, favor of



16/34

SPCL - LETTER OF CREDIT- CASE DIGESTE3A" to fi,a,ce t'e purc'ase of u,its of '!draulic loaders*

T'e L/C will epire so(eti(e i,Februar! but it was ete,ded u,tilOctober %about ;< (o,t's&

T'e first batc' of loaders were

delivered b! E3A" o, ti(e a,d FAREAST paid it*

T'e seco,d batc' was deliveredbe!o,d t'e epiratio, of t'e L/C*

Despite t'e late deliver! % (o,t'sdela!&+ FAR EAST still paid E3A"upo, its prese,tatio, of stipulateddocu(e,ts*

FAR EAST t'e, de(a,ded RODKSE"

for rei(burse(e,t*

RODKSE" refused+ i,stead+ it offeredto retur, 'e last batc' of loaders*

ISSUE:4O" RODKSE" ca, refuse to pa!FAR EAST despite its pa!(e,t be!o,d t'eepiratio, of L/C*

HELD:

"O* e t'at was it (a!+ 4e a.ree wit' CA

t'at RODSKE" s'ould pa! respo,de,tFAR EAST for t'e a(ou,t t'e latterepe,ded for t'e e2uip(e,t belatedl!delivered b! E3A" a,d volu,taril!receipt a,d 0ept b! RODSKE"*

FAR EAST ri.'t to recover! isa,c'ored ,ot upo, t'e i,efficaciousL/C but o, Article 8;=8+ "CC*

Certai, lawful+ volu,tar! a,d u,ilateralacts .ive rise to t'e 7uridical relatio,of 2uasi-co,tract to t'e e,d t'at ,oo,e s'all be u,7ustl! e,ric'ed orbe,efitted at t'e epe,se of a,ot'er*

E2uitable co,sideratio,s be'oove usto allow recover!*

True+ it erred i, pa!i,. E3A" butRODKSE" is ,ot wit'out fault i, t'etra,sactio,* It 'ad volu,taril! receiveda,d 0ept t'e loaders si,ce October;B@B*

Alt'ou.' RODKSE" clai(ed t'at it

accepted t'e deliver! because it wasbou,d to receive it

u,der t'e co(pa,!1s trust receiptarra,.e(e,t wit' FAR EAST*

Gra,ti,. t'at it is bou,d b! suc'arra,.e(e,t+ we ,ote its u,eplai,edi,actio, for al(ost = !ears wit' re.ardto t'e status of t'e ow,ers'ip a,dpossessio, of t'e loaders*

Also+ it o,l! for(ali9ed its retur, of t'e

8 pieces of e2uip(e,t o,l! after FAREAST de(a,ded pa!(e,t+ w'ic''appe,ed : !ears after t'e deliver!*

4'e, bot' parties to t'e tra,sactio,are (utuall! ,e.li.e,t i, t'eperfor(a,ce of t'eir obli.atio,s+ t'efault of o,e ca,cels t'e ,e.li.e,ce oft'e ot'er*

I, t'is case t'e ri.'ts a,d obli.atio,s(a! be deter(i,ed e2uitabl! u,dert'e law proscribi,. u,7ust e,ric'(e,t*

A, I w'ic' paid t'e be,eficiar! of a,epired L/C ca, recover pa!(e,tfro( a, A w'ic' obtai,ed t'e .oodsfro( t'e be,eficiar! to preve,t u,7uste,ric'(e,t*



17/34


VIII. RELIANCE COMMODITIES, INC.V. DAEOO INDUSTRIAL CO.

FACTS:

RELIA"CE %A& a,d DAE4OO %S&e,tered i,to two co,tract of sale fort'e s'ip(e,t a,d deliver! of fou,dr!pi. iro, provided t'at a L/C s'all covert'eir seco,d tra,sactio,*

$,der t'e first co,tract Daewoo fells'ort of certai, (etric to,s*

$,der t'e seco,d co,tract+ t'e 8+


18/34

SPCL - LETTER OF CREDIT- CASE DIGESTa& t'e dul!acco(plis'ed L/Capplicatio,

b& fir(offer/profor"ai,voice w'ic' s'allco,tai,i,for(atio, o, t'especific 2ua,tit! oft'e i(portatio,+u,it cost a,d totalcost+ co(pletedescriptio,/specificatio, of t'eco((odit! a,d t'eP'ilippi,e Sta,dardCo((odit!Classificatio,

statistical code

c&per"its'clearancesfro" theappropriate$overn"enta$encies#wheneverapplicable( a,d

d& dul!

acco(plis'edI(port E,tr!

Declaratio, %IED&for( w'ic' s'allserve as basis forpa!(e,t ofadva,ce duties asre2uired u,der PD;:* ;;%E(p'asis

supplied&

T'e ,eed for per(its or cleara,cesfro( appropriate .over,(e,ta.e,cies arises w'e, re.ulatedco((odities are to be i(ported*Certai, co((odities are classified asNre.ulated co((oditiesN for purposesof t'eir i(portatio,+ Nfor reaso,s ofpublic 'ealt' a,d safet!+ ,atio,al

securit!+ i,ter,atio,al co((it(e,ts+a,d develop(e,t/ratio,ali9atio, oflocal i,dustr!*N T'e petitio,er i, t'ei,sta,t case e,tered i,to a tra,sactio,to i(port fou,dr! pi. iro,+ a re.ulatedco((odit!*

I, respect of t'e i(portatio, of t'isparticular co((odit!+ t'e Iro, a,dSteel Aut'orit! %ISA& is t'e.over,(e,t a.e,c! desi.,ated toissue t'e per(it or cleara,ce* Prior tot'e issua,ce of suc' per(it orcleara,ce+ ISA as0s t'e bu!er/i(porterto co(pl! wit' particularre2uire(e,ts+ suc' as to s'ow t'eavailabilit! of forei., ec'a,.eallocatio,s* T'e issua,ce of a, L/Cbeco(es+ a(o,. ot'er t'i,.s+ a,i,dicatio, of co(plia,ce b! t'e

bu!er/i(porter wit' 'is ow,.over,(e,t?s re.ulatio,s relati,. toi(ports a,d to pa!(e,t t'ereof*

T'e records s'ows t'at t'e ope,i,. oft'e L/C i, t'e i,sta,t case beca(ever! difficult because Relia,ce 'ade'austed its dollar allocatio,*Relia,ce 0,ew t'at it 'ad alread!eceeded its dollar allocatio, for t'e!ear ;B< w'e, it e,tered i,to t'e :;

)ul! ;B< tra,sactio, wit' Daewoo*

As a rule+ w'e, t'e i(porter 'aseceeded its forei., ec'a,.eallocatio,+ 'is applicatio, would bede,ied* Jowever+ ISA could reco,sidersuc' applicatio, o, a case to casebasis*

T'us+ i, t'e i,sta,t case+ ISA re2uiredRelia,ce to support its applicatio, b!sub(itti,. purc'ase orders fro( e,d-users for t'e sa(e 2ua,tit! t'e latter

wis'ed to i(port* As earlier ,oted+Relia,ce was able to prese,t purc'ase

orders for o,l! B


19/34

SPCL - LETTER OF CREDIT- CASE DIGESTi,to t'e :; )ul! ;B< co,tract wit'Daewoo+ petitio,er Relia,ce ca, 'oldo,l! itself respo,sible* for 'avi,.failed to secure e,d-users purc'aseorders e2uivale,t to 8+


20/34

SPCL - LETTER OF CREDIT- CASE DIGESTof t'e (erc'a,dise i(ported orpurc'ased+ *** * T'e ba,0 does ,otbeco(e t'e real ow,er of t'e

.oods* It is (erel! t'e 'older of asecurit! title for t'e adva,ces it 'ad(ade to t'e i(porter* T'e .oods t'ei(porter 'ad purc'ased t'rou.' t'eba,0 fi,a,ci,.+ re(ai, t'e i(porter?spropert! a,d 'e 'olds it at 'is ow,ris0* T'e trust receipt arra,.e(e,tdoes ,ot co,vert t'e ba,0 i,to a,i,vestor it re(ai,s a le,der a,dcreditor* T'is is so because t'e ba,0'ad previousl! ete,ded a loa, w'ic't'e letter of credit represe,ts to t'ei(porter+ a,d b! t'at loa,+ t'ei(porter s'ould be t'e real ow,er oft'e .oods* If u,der t'e trust receipt+t'e ba,0 is (ade to appear as t'eow,er+ it was but a, artificialepedie,t+ (ore of a le.al fictio, t'a,fact+ for if it were so+ it could disposeof t'e .oods i, a,! (a,,er it wa,ts+w'ic' it ca,,ot do+ 7ust to .iveco,siste,c! wit' t'e purpose of t'etrust receipt of .ivi,. a stro,.ersecurit! for t'e loa, obtai,ed b! t'ei(porter* To co,sider t'e ba,0 as t'etrue ow,er fro( t'e i,ceptio, of t'etra,sactio, would be to disre.ard t'eloa, feature i,volved*

* * * . letter of credit%trust receiptarran$e"ent is endowed with its owndistinctive features and characteristics.)nder that set%up# a bank e*tends a loancovered b! the letter of credit# with thetrust receipt as a securit! for the loan. +nother words# the transaction involves aloan feature represented b! the letter ofcredit# and a securit! feature which is inthe coverin$ trust receipt. . . . .

A trust receipt+ t'erefore+ is a securit!a.ree(e,t+ pursua,t to w'ic' a ba,0ac2uires a Nsecurit! i,terestN i, t'e.oods* It secures a, i,debted,ess a,dt'ere ca, be ,o suc' t'i,. as securit!i,terest t'at secures ,o obli.atio,*

T'e (ar.i,al deposit re2uire(e,t is aCe,tral a,0 (easure to cut offecess curre,c! li2uidit! w'ic' wouldcreate i,flatio,ar! pressure* It is a

collateral securit! .ive, b! t'e debtor+a,d is supposed to be retur,ed to 'i(upo, 'is co(plia,ce wit' 'is securedobli.atio,*

Co,se2ue,tl!+ t'e ba,0 pa!s ,oi,terest o, t'e (ar.i,al deposit+u,li0e a, ordi,ar! ba,0 deposit w'ic'ear,s i,terest i, t'e ba,0* As a (atterof fact+ t'e (ar.i,al depositre2uire(e,t for letters of credit 'asbee,

disco,ti,ued+ ecept i, t'ose casesw'ere t'e applica,t for a letter ofcredit is ,ot 0,ow, tot'e ba,0 or does ,ot (ai,tai, a .oodcredit sta,di,. t'erei,*

It is o,l! fair t'e, t'at t'e i(porter?s

(ar.i,al deposit %if o,e was (ade+ asi, t'is case&+ s'ould be set off a.ai,st'is debt+ for w'ile t'e i(porter ear,s,o i,terest o, 'is (ar.i,al deposit+t'e ba,0+ apart fro( bei,. able to usesaid deposit for its ow, purposes+ alsoear,s i,terest o, t'e (o,e! it loa,edto t'e i(porter* It would be o,erous toco(pute i,terest a,d ot'er c'ar.eso, t'e face value of t'e letter of creditw'ic' t'e ba,0 issued+ wit'out firstcrediti,. or setti,. off t'e (ar.i,al

deposit w'ic' t'e i(porter paid to t'eba,0*

Co(pe,satio, is proper a,d s'ouldta0e effect b! operatio, of lawbecause t'e re2uisites i, Article ;8@Bof t'e Civil Code are prese,t a,ds'ould eti,.uis' bot' debts to t'eco,curre,t a(ou,t %Art* ;8B


21/34

SPCL - LETTER OF CREDIT- CASE DIGESTfu,ds* Re2uiri,. t'e i(porter to pa!i,terest o, t'e e,tire letter of creditwit'out deducti,. first 'i( (ar.i,aldeposit+ would be a clear case ofu,7ust e,ric'(e,t b! t'e ba,0*

Petitio, for review is .ra,ted*

!. CONSOLIDATED BANK & TRUSTCO. V. COURT OF APPEALS

FACTS:

CO"TI"E"TAL Ce(e,t Corp* a,dGre.or! T* LI3 obtai,ed fro(CO"SOLIDATED A" a,d Trust Co* aL/C*

CO"TI"E"TAL paid a 3D of P:8


22/34


ISSUE:;* 4O" t'e 3D (ust be deducted first*8* 4O" t'e tra,sactio, is o,e of si(ple loa,or t'at of trust receipt*

HELD:

T'e petitio, (ust be de,ied* CO"SOLIDATED A"1s co,te,tio,

t'at t'e (ar.i,al deposit (ade b!CO"TI"E"TAL s'ould ,ot be deductedoutri.'t fro( t'e a(ou,t of t'e letterof credit is u,te,able*

Petitio,er ar.ues t'at t'e (ar.i,aldeposit s'ould be co,sidered o,l!after co(puti,. t'e pri,cipal plusaccrued i,terests a,d ot'er c'ar.es*

Jowever+ to sustai, petitio,er o, t'isscore would be to cou,te,a,ce a clear

case of u,7ust e,ric'(e,t+ for w'ile a(ar.i,al deposit ear,s ,o i,terest i,favor of t'e debtor-depositor+ t'e

ba,0 is ,ot o,l! able to use t'e sa(efor its ow, purposes+ i,terest-free+ butis also able to ear, i,terest o, t'e(o,e! loa,ed to respo,de,tCorporatio,*

I,deed+ it would be o,erous toco(pute i,terest a,d ot'er c'ar.eso, t'e face value of t'e letter of credit

w'ic' t'e petitio,er issued+ wit'outfirst crediti,. or setti,. off t'e(ar.i,al deposit w'ic' t'erespo,de,t Corporatio, paid to it*

Co(pe,satio, is proper a,d s'ouldta0e effect b! operatio, of lawbecause t'e re2uisites i, Article ;8@Bof t'e Civil Code are prese,t a,ds'ould eti,.uis' bot' debts to t'eco,curre,t a(ou,t*i

Je,ce+ t'e i,terests a,d ot'er c'ar.eso, t'e sub7ect letter of credit s'ould

be co(puted o,l! o, t'e bala,ce ofP;+


23/34

SPCL - LETTER OF CREDIT- CASE DIGESTe,deavored to (eet t'eir obli.atio,s+ ass'ow, b! several receipts issued b! PCac0,owled.i,. pa!(e,t of t'e loa,*

T'e practice of ba,0s of (a0i,.borrowers si., trust receipts tofacilitate collectio, of loa,s a,dplace t'e( u,der t'e t'reats of

cri(i,al prosecutio, s'ould t'e!be u,able to pa! it (a! be u,7usta,d i,e2uitable+ if ,otrepre'e,sible* Suc' a.ree(e,tsare co,tracts of ad'esio, w'ic'borrowers 'ave ,o optio, but tosi., lest t'eir loa, bedisapproved* T'e resort to t'issc'e(e leaves poor a,d 'aplessborrowers at t'e (erc! of ba,0s+a,d is pro,e to (isi,terpretatio,+as 'ad 'appe,ed i, t'is case*

Eve,tuall!+ PC s'owed its truecolors a,d ad(itted t'at it waso,l! after collectio, of t'e (o,e!+as (a,ifested b! its Affidavit ofDesista,ce*

Si(ilarl!+ respo,de,t Corporatio,ca,,ot be said to 'ave bee,dis'o,est i, its deali,.s wit'petitio,er* "eit'er 'as it bee,s'ow, t'at it 'as evaded pa!(e,tof its obli.atio,s* I,deed+ it

co,ti,uall! e,deavored to (eett'e sa(e+ as s'ow, b! t'e variousreceipts issued b! petitio,erac0,owled.i,. pa!(e,t o, t'eloa,* Certai,l!+ t'e pa!(e,t oft'e su( of P;+:8+;*: o, aloa, wit' a pri,cipal a(ou,t ofo,l! P;+ice Preside,t ofrespo,de,t Corporatio,* 4e

stress t'e 'or,boo0 law t'atcorporate perso,alit! is a s'ielda.ai,st perso,al liabilit! of itsofficers* T'us+ we a.ree t'atrespo,de,ts Gre.or! T* Li( a,d'is spouse ca,,ot be (adeperso,all! liable si,ce respo,de,tLi( e,tered i,to a,d si.,ed t'eco,tract clearl! i, 'is officiacapacit! as Eecutive >icePreside,t* T'e perso,alit! of t'ecorporatio, is separate a,d

disti,ct fro( t'e perso,sco(posi,. it*iii

Petitio, for Review is DE"IED*



24/34


!I. MSS v. DAAY

FACTS:

34SS .ra,ted 3A#"ILAD a 8


25/34

SPCL - LETTER OF CREDIT- CASE DIGESTu,derta0i,.s to pa! t'e (o,e!adva,ced or t'e a(ou,t for w'ic'credit is .ive, o, t'e fait' of t'ei,stru(e,t* T'e! are pri(ar!obli.atio,s a,d ,ot accessor!co,tracts a,d w'ile t'e! are securit!arra,.e(e,ts+ t'e! are ,ot co,vertedt'ereb! i,to co,tracts of .uara,t!*

4'at disti,.uis'es letters of creditfro( ot'er accessor! co,tracts+ is t'ee,.a.e(e,t of t'e issui,. ba,0 topa! t'e seller o,ce t'e draft a,d ot'erre2uired s'ippi,. docu(e,ts are

prese,ted to it*8 T'e! are defi,iteu,derta0i,.s to pa! at si.'t o,ce t'e

docu(e,ts stipulated t'erei, areprese,ted*

4e 'ave accepted+ i, ,eati Bank andTrust Co"pan! v. Court of ppeals:

a,dBank of "erica NT - S v. Courtof ppeals+= to t'e ete,t t'at t'e!are perti,e,t+ t'e applicatio, i, our

7urisdictio, of t'e i,ter,atio,al creditre.ulator! set of rules 0,ow, as t'e$,ifor( Custo(s a,d Practice forDocu(e,tar! Credits %$*C*P& issued b!t'e I,ter,atio,al C'a(ber ofCo((erce+ w'ic' we said i, Bank ofthe Philippine +slands v. Ner! was

7ustified u,der Art* 8 of t'e Code ofCo((erce+ w'ic' states

5Acts of co((erce+ w'et'ert'ose w'o eecute t'e( be(erc'a,ts or ,ot+ a,d w'et'erspecified i, t'is Code or ,ot s'ouldbe .over,ed b! t'e provisio,sco,tai,ed i, it i, t'eir abse,ce+ b!t'e usa.es of co((erce .e,erall!

observed i, eac' place a,d i, t'eabse,ce of bot' rules+ b! t'ose oft'e civil law*6

2

3

4

5

T'e pro'ibitio, u,der Sec %b& of Rule= of t'e I,teri( Rules does ,ot appl!to 'erei, petitio,er as t'e pro'ibitio,is o, t'e e,force(e,t of clai(sa.ai,st .uara,tors or sureties of t'edebtors w'ose obli.atio,s are ,otsolidar! wit' t'e debtor* T'eparticipati,. ba,0s1 obli.atio, aresolidar! wit' respo,de,t 3a!,ilad i,t'at it is a pri(ar!+ direct+ defi,ite a,da, absolute u,derta0i,. to pa! a,d is,ot co,ditio,ed o, t'e priore'austio, of t'e debtor1s assets

T'ese are t'e sa(e c'aracteristics ofa suret! or solidar! obli.or*

ei,. solidar!+ t'e clai(s a.ai,stt'e( ca, be pursued separatel! fro(a,d i,depe,de,tl! of t'e re'abilitatio,case+ as 'eld i, Traders /o!al Bank v

Court of ppeals a,d reiterated i,Philippine Bloo"in$ 0ills# +nc. v. Courtof ppeals+@ w'ere we said t'atpropert! of t'e suret! ca,,ot be ta0e,i,to custod! b! t'e re'abilitatio,receiver %SEC& a,d said suret! ca, besued separatel! to e,force 'is liabilit!as suret! for t'e debts or obli.atio,sof t'e debtor* T'e debts or obli.atio,sfor w'ic' a suret! (a! be liablei,clude future debts+ a, a(ou,t w'ic'(a! ,ot be 0,ow, at t'e ti(e t'e

suret! is .ive,*

T'e ter(s of t'e Irrevocable Sta,db!Letter of Credit do ,ot s'ow t'at t'eobli.atio,s of t'e ba,0s are ,otsolidar! wit' t'ose of respo,de,t3a!,ilad* O, t'e co,trar!+ it is issuedat t'e re2uest of a,d for t'e accou,tof 3a!,ilad 4ater Services+ I,c*+ i,favor of t'e 3etropolita, 4aterwor0sa,d Sewera.e S!ste(+ as a bo,d fort'e full a,d pro(pt perfor(a,ce of

t'e obli.atio,s b! t'e co,cessio,aireu,der t'e Co,cessio, A.ree(e,ta,d'erei, petitio,er is aut'ori9ed b! t'eba,0s to draw o, it b! t'e si(ple actof deliveri,. to t'e a.e,t a writte,

6

7

8



26/34

SPCL - LETTER OF CREDIT- CASE DIGESTcertificatio, substa,tiall! i, t'e for(A,,e 56 of t'e Letter of Credit* Itprovides furt'er i, Sec* + t'at for aslo,. as t'e Sta,db! Letter of Credit isvalid a,d subsisti,.+ t'e a,0s s'all'o,or a,! writte, Certificatio, (adeb! 34SS i, accorda,ce wit' Sec* 8+ oft'e Sta,db! Letter of Credit re.ardlessof t'e date o, w'ic' t'e eve,t .ivi,.rise to suc' 4ritte, Certificatio,arose*B

T'e public respo,de,t+ t'erefore+eceeded 'is 7urisdictio,+ i, 'oldi,.t'at 'e was co(pete,t to act o, t'eobli.atio, of t'e ba,0s u,der t'eLetter of Credit u,der t'e ar.u(e,tt'at t'is was ,ot a solidar! obli.atio,wit' t'at of t'e debtor* ei,. asolidar! obli.atio,+ t'e letter of credit

is ecluded fro( t'e 7urisdictio, oft'e re'abilitatio, court a,d t'ereforei, e,7oi,i,. petitio,er fro(proceedi,. a.ai,st t'e SLOC to w'ic'it 'ad a clear ri.'t u,der t'e law a,dt'e ter(s of said SLOC*

Petitio, for certiorariis GRA"TED*

9



27/34

i

!II. TRANSFIELD PHILIPPINES INC. V. LUZON HYDRO CORP.

FACTS:

TRA"SFIELD a,d L$KO" J#DRO e,tered i,to a tur, 0e! co,tract*

TRA"SFIELD is t'e co,tractor for @B (e.awatt '!dro electric power a,d .ive, t'esole power a,d discretio, for t'e co,structio, of t'e pro7ect

To secure t'e obli.atio, of TRA"SFIELD+ it ope,ed 8 SLOC fro( A"K A" a,d SC

i, favor of L$KO" J#DRO*

ut later o,+ so(e circu(sta,ces preve,ted TRA"SFIELD to co(plete t'e pro7ect*

TRA"SFIELD re2uested L$KO" J#DRO for ete,sio,s but it was de,ied*

As TRA"SFIELD defaulted o, its obli.atio,+ L$KO" J#DRO served ,otice to

TRA"SFIELD t'at it will .o after t'e securit! ba,0s*

To preve,t t'is+ TRA"FIELD filed a, i,7u,ctio,*

ut t'e TC ruled t'at L$KO" J#DRO was allowed to draw o, t'e securities for

li2uidated da(a.es bei,. a, i,depe,de,t co,tract*

It furt'er ruled t'at ba,0s are (ere custodia, of t'e fu,ds a,d as suc' t'e! are

obli.ated to tra,sfer it to t'e be,eficiar!*

TRA"SFIELD appealed co,te,di,. t'at it is pre(ature for L$KO" J#DRO to draw

a.ai,st SLOC because t'e issue is ,ot !et resolved wit' re.ard to its default*

OTOJ+ L$KO" J#DRO averred t'at securities are i,depe,de,t fro( t'e (ai,

co,tract betwee, t'e as s'ow, i, t'e face of t'e SLOCs*

It provided t'at t'e ba,ls 'ave ,o respo,sibilit! to i,vesti.ate t'e aut'e,ticit! or

accurac! of

t'e certificate of t'e declara,t1s capacit! or e,title(e,t to so certif!*

ISSUES: 4O" L$KO" J#DRO (a! draw a.ai,st t'e SLOC re.ardless of t'e pe,di,.

issue o, t'e (ai, co,tract*

HELD:

At t'e core of t'e prese,t co,trovers! is t'e applicabilit! of t'e 5i,depe,de,cepri,ciple6 a,d 5fraud eceptio, rule6 i, letters of credit* T'us+ a discussio, of t'e,ature a,d use of letters of credit+ also referred to si(pl! as 5credits+6 wouldprovide a better perspective of t'e case*


28/34

T'ere are t'ree si.,ifica,t differe,ces betwee, co((ercial a,d sta,db! credits*First+ co((ercial credits i,volve t'e pa!(e,t of (o,e! u,der a co,tract of sale*Suc' credits beco(e pa!able upo, t'e prese,tatio, b! t'e seller-be,eficiar! ofdocu(e,ts t'at s'ow 'e 'as ta0e, affir(ative steps to co(pl! wit' t'e salesa.ree(e,t* I, t'e sta,db! t!pe+ t'e credit is pa!able upo, certificatio, of a part!?s,o,perfor(a,ce of t'e a.ree(e,t* T'e docu(e,ts t'at acco(pa,! t'e

be,eficiar!?s draft te,d to s'ow t'at t'e applica,t 'as ,ot perfor(ed* T'ebe,eficiar! of a co((ercial credit (ust de(o,strate b! docu(e,ts t'at 'e 'asperfor(ed 'is co,tract* T'e be,eficiar! of t'e sta,db! credit (ust certif! t'at 'isobli.or 'as ,ot perfor(ed t'e co,tract*:8M

T'us+ t'e e,.a.e(e,t of t'e issui,. ba,0 is to pa! t'e seller or be,eficiar! of t'ecredit o,ce t'e draft a,d t'e re2uired docu(e,ts are prese,ted to it*

T'e so-called 5i,depe,de,ce pri,ciple6 assures t'e seller or t'e be,eficiar! ofpro(pt pa!(e,t i,depe,de,t of a,! breac' of t'e (ai, co,tract a,d precludest'e issui,. ba,0 fro( deter(i,i,. w'et'er t'e (ai, co,tract is actuall!acco(plis'ed or ,ot*

$,der t'is pri,ciple+ ba,0s assu(e ,o liabilit! or respo,sibilit! for t'e for(+sufficie,c!+ accurac!+ .e,ui,e,ess+ falsificatio, or le.al effect of a,! docu(e,ts+or for t'e .e,eral a,d/or particular co,ditio,s stipulated i, t'e docu(e,ts orsuperi(posed t'ereo,+ ,or do t'e! assu(e a,! liabilit! or respo,sibilit! for t'edescriptio,+ 2ua,tit!+ wei.'t+ 2ualit!+ co,ditio,+ pac0i,.+ deliver!+ value oreiste,ce of t'e .oods represe,ted b! a,! docu(e,ts+ or for t'e .ood fait' or actsa,d/or o(issio,s+ solve,c!+ perfor(a,ce or sta,di,. of t'e co,si.,or+ t'e carriers+or t'e i,surers of t'e .oods+ or a,! ot'er perso, w'o(soever* :BM

Give, t'e ,ature of letters of credit+ petitio,er1s ar.u(e,tQt'at it is o,l! t'eissui,. ba,0 t'at (a! i,vo0e t'e i,depe,de,ce pri,ciple o, letters of creditQdoes,ot i(press t'is Court* To sa! t'at t'e i,depe,de,ce pri,ciple (a! o,l! bei,vo0ed b! t'e issui,. ba,0s would re,der ,u.ator! t'e purpose for w'ic' t'eletters of credit are used i, co((ercial tra,sactio,s* As it is+ t'e i,depe,de,cedoctri,e wor0s to t'e be,efit of bot' t'e issui,. ba,0 a,d t'e be,eficiar!*

Letters of credit are e(plo!ed b! t'e parties desiri,. to e,ter i,to co((ercialtra,sactio,s+ ,ot for t'e be,efit of t'e issui,. ba,0 but (ai,l! for t'e be,efit oft'e parties to t'e ori.i,al tra,sactio,s* 4it' t'e letter of credit fro( t'e issui,.ba,0+ t'e part! w'o applied for a,d obtai,ed it (a! co,fide,tl! prese,t t'e letterof credit to t'e be,eficiar! as a securit! to co,vi,ce t'e be,eficiar! to e,ter i,tot'e busi,ess tra,sactio,* O, t'e ot'er 'a,d+ t'e ot'er part! to t'e busi,esstra,sactio,+ i.e.+ t'e be,eficiar! of t'e letter of credit+ ca, be rest assured of bei,.e(powered to call o, t'e letter of credit as a securit! i, case t'e co((ercialtra,sactio, does ,ot pus' t'rou.'+ or t'e applica,t fails to perfor( 'is part of t'e

tra,sactio,* It is for t'is reaso, t'at t'e part! w'o is e,titled to t'e proceeds oft'e letter of credit is appropriatel! called 5be,eficiar!*6

Petitio,er1s ar.u(e,t t'at a,! dispute (ust first be resolved b! t'e parties+w'et'er t'rou.' ,e.otiatio,s or arbitratio,+ before t'e be,eficiar! is e,titled tocall o, t'e letter of credit i, esse,ce would co,vert t'e letter of credit i,to a (ere.uara,tee* )urisprude,ce 'as laid dow, a clear disti,ctio, betwee, a letter ofcredit a,d a .uara,tee i, t'at t'e settle(e,t of a dispute betwee, t'e parties is,ot a pre-re2uisite for t'e release of fu,ds u,der a letter of credit* I, ot'er words+t'e ar.u(e,t is i,co(patible wit' t'e ver! ,ature of t'e letter of credit* If a letter
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of credit is drawable o,l! after settle(e,t of t'e dispute o, t'e co,tract e,teredi,to b! t'e applica,t a,d t'e be,eficiar!+ t'ere would be ,o practical a,dbe,eficial use for letters of credit i, co((ercial tra,sactio,s*

"et+ petitio,er i,vo0es t'e 5fraud eceptio,6 pri,ciple* It avers t'at LJC1s call o,t'e Securities is wro,.ful because it fraudule,tl! (isreprese,ted to A"K a,0 a,dSC t'at t'ere is alread! a breac' i, t'e Tur,0e! Co,tract 0,owi,. full! well t'at

t'is is !et to be deter(i,ed b! t'e arbitral tribu,als* It asserts t'at t'e 5fraudeceptio,6 eists w'e, t'e be,eficiar!+ for t'e purpose of drawi,. o, t'e credit+fraudule,tl! prese,ts to t'e co,fir(i,. ba,0+ docu(e,ts t'at co,tai,+ epressl! orb! i(plicatio,+ (aterial represe,tatio,s of fact t'at to 'is 0,owled.e are u,true*I, suc' a situatio,+ petitio,er i,sists+ i,7u,ctio, is reco.,i9ed as a re(ed! availableto it*

Citi,. Dola,1s treatise o, letters of credit+ petitio,er ar.ues t'at t'e i,depe,de,cepri,ciple is ,ot wit'out li(its a,d it is i(porta,t to fas'io, t'ose li(its i, li.'t of t'epri,ciple1s purpose+ w'ic' is to serve t'e co((ercial fu,ctio, of t'e credit* If it does ,otserve t'ose fu,ctio,s+ applicatio, of t'e pri,ciple is ,ot warra,ted+ a,d t'e co((o,lawpri,ciples of co,tract s'ould appl!*

It is wort'! of ,ote t'at t'e propriet! of LJC1s call o, t'e Securities is lar.el!i,tertwi,ed wit' t'e fact of default w'ic' is t'e self-sa(e issue pe,di,. resolutio, beforet'e arbitral tribu,als* To be able to declare t'e call o, t'e Securities wro,.ful orfraudule,t+ it is i(perative to resolve+ a(o,. ot'ers+ w'et'er petitio,er was i, fact .uilt!of dela! i, t'e perfor(a,ce of its obli.atio,* $,fortu,atel! for petitio,er+ t'is Court is,ot called upo, to rule upo, t'e issue of defaultQsuc' issue 'avi,. bee, sub(itted b!t'e parties to t'e 7urisdictio, of t'e arbitral tribu,als pursua,t to t'e ter(s e(bodied i,t'eir a.ree(e,t*=@M

HEREFORE+ t'e i,sta,t petitio, is DE"IED+ wit' costs a.ai,st petitio,er*

!III. BANK OF COMMERCE V SERRANO

FACTS:

>IA 3ODA as represe,ted b! SERRA"O obtai,ed a, eport pac0i,. loa, fro( A"

OF CO33ERCE

T'e loa, was secured b! a deed of assi.,(e,t over a, irrevocable tra,sferable

letter of credit*

Serra,o t'e, eecuted a pro(isor! ,ote i, favor of A" OF CO33ERCE*

>IA 3ODA ope,ed a, irrevocable L/C for t'e purc'ase a,d i(portatio, of fabric

a,d tetile porducts fro( ti.er ear fabric* A trust receipt was eecuted to secure t'e purc'ase

$,der t'e trust receipt+ >IA 3ODA a.reed to 'old t'e .oods i, trust i, favor of

SERRA"O as >IA 3ODA1s propert! to sell t'e sa(e for t'e latter1s accou,t*

Later+ >IA 3ODA s'ipped t'e .oods covered b! t'e trust receipt to its co,si.,ee i(

"ew )erse!+ $SA*

T'e co,si.,ee t'e, se,t a, Eport Letter of Credit issued b! A" OF "E4#OR i,

favor of A" OF CO33ERCE*
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T'e REG1L OPERATIO"S OFFICER of OC si.,ed t'e eport declaratio,s to s'ow

co,se,t to t'e s'ip(e,ts

A" OF CO33ERCE de(a,ded >IA 3ODA to pa! t'e(* ut t'e latter refused*

>IA 3ODA was c'ar.ed wit' estafa u,der Art* :; RPC i, rel* to PD ;;*

TC fou,d Tererisita Serra,o .uilt! of estafa*

S'e appealed a,d later ac2uitted $T bou,d b! t'e court to be liable wit' respect

to t'e loa, secured b! a trust receipt*

ISSUE:

;* 4JETJER RESPO"DE"T IS )OI"TL# A"D SE>ERALL# LIALE 4ITJ >IA 3ODA$"DER TJE G$ARA"TEE CLA$SE OF LC "O* CK-B=


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Jowever+ t'e 2uestio, of t'e liabilit! of respo,de,t based o, t'e Guara,tee Clauseof t'e Letter of Credit+ was ,ot raised eit'er at t'e trial court or before t'e Court ofAppeals* A 2uestio, t'at was ,ever raised i, t'e courts below ca,,ot be allowed tobe raised for t'e first ti(e o, appeal wit'out offe,di,. basic rules of fair pla!+

7ustice a,d due process* Suc' a, issue was ,ot brou.'t to t'e fore eit'er i, t'etrial court or t'e appellate court+ a,d would 'ave bee, disre.arded b! t'e lattertribu,al for t'e reaso,s previousl! stated* 4it' (ore reaso,+ t'e sa(e does ,ot

deserve co,sideratio, b! t'is Court*;

O, t'e second issue+ t'e Court of Appeals 'eld t'at respo,de,t Serra,o ca,,ot be'eld civill! liable u,der t'e trust receipt si,ce s'e was ,ot (ade perso,all! liable,or was s'e a .uara,tor t'erei,* T'e parties stipulated duri,. t'e pre-trial t'atrespo,de,t Serra,o eecuted t'e trust receipt i, represe,tatio, of >ia 3oda+ I,c*+w'ic' 'as a separate perso,alit! fro( Serra,o+ a,d petitio,er OC failed to s'owsufficie,t reaso, to 7ustif! t'e pierci,. of t'e veil of corporate fictio,* It t'us ruledt'at t'is was ,ot Serra,o1s perso,al obli.atio, but t'at of >ia 3oda a,d t'ere was,o basis of fi,di,. 'er solidaril! liable wit' >ia 3oda*;@

4ort'! of (e,tio, at t'is poi,t is t'e Court of Appeals1 fi,di,. t'at t'ere was ,o(isappropriatio, or co,versio, b! t'e respo,de,t of t'e proceeds of t'e sale i,t'e .oods+ sub7ect of t'e trust receipt si,ce t'e proceeds were actuall! received b!petitio,er but t'e latter applied t'e sa(e to >ia 3oda1s ot'er obli.atio,s u,der t'eeport pac0i,. loa,* It furt'er stated t'at suc' applicatio, of pa!(e,t to a,ot'erobli.atio, was do,e b! petitio,er o, its ow, a,d s'ould ,ot create a cri(i,alliabilit! o, t'e part of respo,de,t w'o did ,ot ta0e part ,or 'ad a,! 0,owled.et'ereof* It is o, t'is pre(ise t'at t'e respo,de,t was ac2uitted of t'e cri(ec'ar.ed*;

I,cide,tall!+ petitio,er ur.ed t'is Court to review t'e factual fi,di,.s of t'e casedue to co,tradictor! fi,di,.s of t'e trial court a,d t'e Court of Appeals arisi,.

fro( (isappreciatio, of facts b! t'e Court of Appeals* Suc' plea (ust bere7ected*l1vvphi.netIt is a well establis'ed rule t'at i, a, appeal via certiorari+o,l! 2uestio,s of law (a! be raised+;Ba,d we fi,d petitio,er1s aver(e,tsi,sufficie,t to disre.ard t'is well-e,tre,c'ed rule* T'is Court does ,ot+ of itself+auto(aticall! delve i,to t'e record of a case to deter(i,e t'e facts a,ew w'eret'ere is disa.ree(e,t betwee, t'e fi,di,.s of fact b! t'e trial court a,d b! t'eCourt of Appeals* 4'e, t'e disa.ree(e,t is (erel! o, t'e probative value of t'eevide,ce+ i*e*+ w'ic' is (ore credible of two versio,s+ we li(it our review to o,l!ascertai,i,. if t'e fi,di,.s of t'e Court of Appeals are supported b! t'e records*So lo,. as t'e fi,di,.s of t'e appellate court are co,siste,t wit' a,d ,ot palpabl!co,trar! to t'e evide,ce o, record+ we s'all decli,e to (a0e a review o, t'eprobative value of suc' evide,ce* T'e fi,di,.s of fact of t'e Court of Appeals+ a,d

,ot t'ose of t'e trial court+ will be co,sidered fi,al a,d co,clusive+ eve, i, t'isCourt*8


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HEREFORE+ t'e petitio, is DE"IED for lac0 of (erit*

!IV. LANDBANK V. MONET3S E!PORT

FACTS:

LP a,d 3O"ET eecuted a, Eport Pac0i,. Credit Li,e A.ree(e,t w'ereb! t'e

latter is .ive, a credit li,e w'ic' was secured b! t'e proceeds of t'e eport letters

of credit+ t'e co,ti,ui,. .uara,tee of t'e sps* Ta.le+ a,d t'ird part! (ort.a.e b!

3e,di.oria*

T'e credit li,e a.ree(e,t was re,ewed a,d a(e,ded several ti(es u,til it was

i,creased to 3*

Later 3O"ET co,ti,uousl! refused to pa! LP despite repeated de(a,ds*

T'e loa, balloo,ed to ;;3

LP filed to t'e RTC a co(plai,t for su( of (o,e! wit' pra!er for preli(i,ar!

attac'(e,t*

3O"ET a,d sps* Ta.le co,te,ded t'at LP failed a,d refused to collect t'e

receivable so, t'eir Eport L/C a.ai,st 4is'bo,e Tradi,. Co* of Ji,. o,. i, t'e

su( of :: 4JILE it (ade u,aut'ori9ed pa!(e,ts o, t'eir I(port L/C to

eautili0e J i, t'e a(ou,t of :3 w'ic' seriousl! da(a.ed t'e busi,ess

i,terest of 3O"ET*

ISSUES: 4O" t'e ba,0 s'ould be faulted for t'e lost of profits of t'e clie,t*

HELD:

Our ruli,. i, Bank of "erica# NT - S v. Court of ppeals+8;Mis perti,e,t

4'at c'aracteri9es letters of credit+ as disti,.uis'ed fro( ot'er accessor!co,tracts+ is t'e e,.a.e(e,t of t'e issui,. ba,0 to pa! t'e seller o,ce t'edraft a,d t'e re2uired s'ippi,. docu(e,ts are prese,ted to it*

I, tur,+ t'is arra,.e(e,t assures t'e seller of pro(pt pa!(e,t+ i,depe,de,t ofa,! breac' of t'e (ai, sales co,tract*
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! t'is so-called 5i,depe,de,ce pri,ciple+6 t'e ba,0 deter(i,es co(plia,cewit' t'e letter of credit o,l! b! ea(i,i,. t'e s'ippi,. docu(e,ts prese,ted

3oreover+ Article : of t'e $,ifor( Custo(s a,d Practice %$CP& forDocu(e,tar! Credits provides t'at credits+ b! t'eir ,ature+ are separatetra,sactio,s fro( t'e sales or ot'er co,tract%s& o, w'ic' t'e! (a! be baseda,d ba,0s are i, ,o wa! co,cer,ed wit' or bou,d b! suc' co,tract%s&+ eve, if

a,! refere,ce w'atsoever to suc' co,tract%s& is i,cluded i, t'e credit* Article ; of t'e $CP states

a,0s assu(e ,o liabilit! or respo,sibilit! for t'e for(+ sufficie,c!+ accurac!+.e,ui,e,ess+ falsificatio, or le.al effect of a,! docu(e,ts+ or for t'e .e,erala,d/or particular co,ditio,s stipulated i, t'e docu(e,ts or superi(posedt'ereo, %0 1% $* ss#* '-"-'-$ %0 0*s4%s-"-'-$ 5%0 $*1*s+0-4$-%, 2*-/$, 6#'-$, +%1-$-%, 4+7-/, 1*'-v*0, v'#* %0*8-s$*+* %5 $* /%%1s 0*40*s*$*1 " 1%+#*$s, or for t'e .oodfait' or acts a,d/or o(issio,s+ solve,c!+ perfor(a,ce or sta,di,. of t'eco,si.,or+ t'e carriers+ or t'e i,surers of t'e .oods+ or a,! ot'er perso,w'o(soever* %E(p'asis supplied&

I, Transfield Philippines# +nc. v. u4on 5!dro Corporation# et al.+88Mwe 'eld t'at t'ee,.a.e(e,t of t'e issui,. ba,0 is to pa! t'e seller or be,eficiar! of t'e credito,ce t'e draft a,d t'e re2uired docu(e,ts are prese,ted to it* T'e so-called5i,depe,de,ce pri,ciple6 assures t'e seller or t'e be,eficiar! of pro(pt pa!(e,t-1*4*1*$ %5 "0*+ %5 $* - +%$0+$ 1 40*+'#1*s $* -ss#-/"7 50% 1*$*0--/ 2*$*0 $* - +%$0+$ -s +$#''++%4'-s*1 %0 %$.

For+ if t'e letter of credit is drawable o,l! after t'e settle(e,t of a,! dispute o,t'e (ai, co,tract e,tered i,to b! t'e applica,t of t'e said letter of credit a,d t'ebe,eficiar!+ t'e, t'ere would be ,o practical a,d be,eficial use for letters of crediti, co((ercial tra,sactio,s*

Accordi,.l!+ we fi,d (erit i, t'e co,te,tio, of La,d a,0 t'at+ as t'e issui,. ba,0i, t'e eautili0e tra,sactio, i,volvi,. a, i(port letter of credit+ it o,l! deals i,docu(e,ts a,d it is ,ot i,volved i, t'e co,tract betwee, t'e parties* T'erelatio,s'ip betwee, t'e be,eficiar! a,d t'e issuer of a letter of credit is ,otstrictl! co,tractual+ because bot' privit! a,d a (eeti,. of t'e (i,ds are lac0i,.*

T'us+ upo, receipt b! La,d a,0 of t'e docu(e,ts of title w'ic' co,for( wit'w'at t'e letter of credit re2uires+ it is dut! bou,d to pa! t'e seller+ as it did i, t'iscase*

T'us+ ,o fault or acts of (is(a,a.e(e,t ca, be attributed to La,d a,0 relative to3o,et1s i(port letter of credit* Its actio,s fi,d solid footi,. o, t'e le.al pri,ciples

a,d 7urisprude,ce earlier discussed* Co,se2ue,tl!+ it was error for t'e trial courta,d for t'e Court of Appeals to .ra,t opportu,it! losses to t'e respo,de,ts o, t'isaccou,t*

O, t'e (atter+ 'owever+ of t'e 4is'bo,e tra,sactio, w'ere it is alle.ed b!respo,de,ts t'at petitio,er failed i, its dut! to protect its %3o,et1s& i,terest i,collecti,. t'e a(ou,t due to it fro( its custo(ers+ we fi,d t'at t'e trial court a,dt'e Court of Appeals co((itted ,o reversible error i, 'oldi,. La,d a,0 liable foropportu,it! losses* T'e trial court su((ari9ed t'e tra,sactio, i, t'is (a,,er
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A careful review of t'e records reveal t'at t'e trial court correctl! co,sidered La,da,0 as t'e attor,e!-i,-fact of 3o,et wit' re.ard to its eport tra,sactio,s wit'4is'bo,e Tradi,. Co(pa,!*

As t'e attor,e!-i,-fact of 3o,et i, tra,sactio,s i,volvi,. its eport letters of credit+suc' as t'e 4is'bo,e accou,t+ La,d a,0 s'ould 'ave eercised t'e re2uisitede.ree of dili.e,ce i, collecti,. t'e a(ou,t due to t'e for(er* T'e records of t'is

case are bereft of evide,ce s'owi,. t'at La,d a,0 eercised t'e prude,ce(a,dated b! its co,tractual obli.atio,s to 3o,et*

T'e failure of La,d a,0 to 7udiciousl! safe.uard t'e i,terest of 3o,et is ,otwit'out a,! repercussio,s vis-U-vis t'e viabilit! of 3o,et as a busi,ess e,terprise*As correctl! observed b! t'e Court of Appeals

I, fi,e+ because of t'e ,o,-collectio, V defe,da,ts-appellees suffered fro( alac0 of fi,a,cial resources sufficie,t to bu! ,ew (aterials* A,d si,ce t'e! alsocould ,o lo,.er draw o, t'eir eisti,. credit li,e wit' La,dba,0+ t'e! could ,otpurc'ase (aterials to fill up t'e orders of t'eir custo(ers* ecause of t'is t'ebusi,ess reputatio, of 3o,et1s suffered w'ic' 'aste,ed its decli,e*8M

a(ou,t of $S ;+

150488834 special commercial law letter of credit case digests

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